Forecast summary

Global demand for biofuels is set to grow by 41 billion litres, or 28%, over 2021-2026 in the main case. The recovery to pre-Covid-19 demand levels accounts for one-fifth of this demand growth. Government policies are the principal driver of the remaining expansion, but other factors such as overall transport fuel demand, costs and specific policy design influence where growth occurs and which fuels grow quickest. The combination of these influences pushes Asian biofuel production past that of Europe during the forecast period. Policies in the United States and Europe help demand for renewable diesel (also known as hydrogenated vegetable oil [HVO] in Europe) to nearly triple.1 The factors influencing biofuel demand are all subject to uncertainty. For example, some governments have responded to the current high price of feedstock by relaxing or delaying biofuel blending mandates, with the effect of reducing demand. However, over the medium term, major policy discussions in the United States, Europe, India and People’s Republic of China (hereafter ‘China’) hold the promise of a more than doubling of biofuel demand growth in the accelerated case.

Biofuels recover in 2021 despite high costs

Rising prices are slowing biofuels’ growth, but according to our forecast, demand in 2021 nevertheless recovers from the lows seen in 2020 during the Covid-19 crisis. Brazil, Argentina, Colombia and Indonesia are managing climbing feedstock and biofuel costs by temporarily reducing or delaying blending mandates. We estimate these actions to reduce demand by 3%, or 5 billion litres, in 2021 compared to a scenario where mandates remained unchanged or were increased as planned. By August 2021 biofuel prices had increased by between 70% and 150% across the United States, Europe, Brazil and Indonesia,2 depending on the market and fuel, from average 2019 prices. For comparison, crude oil prices increased by 40% over the same time period.

While overall biofuel demand returns to 2019 levels this year even with slower growth, the recovery is uneven. Ethanol demand remains 4% below 2019 levels in 2021 and does not fully recover until 2023. High ethanol prices in Brazil and lower gasoline demand in the United States relative to 2019 levels are both driving lower ethanol volumes in 2021. By 2023 US and European gasoline demand has recovered from Covid-19 disruption, but remains well below 2019 levels (IEA, 2021c). Increasing energy efficiency, surging electric vehicle sales and behaviour change all contribute to lower demand. Lower gasoline demand reduces ethanol volumes under current policies. However, ethanol demand recovery in Brazil and growing demand in Asia eventually offset declines in the United States and Europe in 2023.

By comparison, in 2021 biodiesel, renewable diesel and biojet, expand well beyond 2019 levels, albeit from a low base for biojet. The combined demand for these fuels in 2021 is up 15%, or 7 billion litres, from 2019 levels. Renewable diesel demand in the United States and Asian biodiesel demand are responsible for the majority of this growth.

Asia to surpass European biofuel production before 2026

Asia surpasses total European biofuel production in the forecast period thanks to strong domestic policies, growing liquid fuel demand and export-driven production. Asian countries account for nearly one-third of new production over the forecast period. Blending targets for biodiesel in Indonesia and Malaysia and India’s ethanol policies are responsible for most of this growth. North American biofuel demand grows the most by 2026; however, 40% of this growth is demand recovery following Covid-19 declines. The United States and Brazil remain the largest centres for both biofuel demand and production.

Biofuel demand growth and share of total demand by region, 2021-2026


Biofuel demand growth and share of total demand by fuel, 2021-2026


Ethanol and renewable diesel lead biofuels growth

Renewable diesel demand nearly triples between 2020 and 2026, primarily thanks to policies in the United States and Europe. However, in absolute volume, ethanol demand growth surpasses that of renewable diesel. The majority of renewable diesel growth is concentrated in the United States and Europe. In both regions renewable diesel competes well in a policy environment that values GHG reductions and places limits on some biofuel feedstocks, as it can be produced with a low GHG intensity using wastes and residues. It has a further benefit in that it can be blended at higher levels than biodiesel.

Ethanol and biodiesel growth remains robust, however, thanks to demand in Latin America and Asia, and recovery from Covid-19 declines. In Asia, India’s efforts to reach 20% ethanol blending by 2025 support global ethanol demand growth, while Indonesia’s 40% blending mandate planned for 2022 stimulates biodiesel expansion. In both countries, growing transport fuel demand over the forecast period, in combination with mandates, accelerates biofuel demand. Similarly, in Latin America, Brazil’s biofuel policies combined with growing gasoline and diesel demand drive up biofuel use. 

Four policy discussions to watch that will help double biofuel growth rates

The outcomes of policy discussions in the United States, Europe, India and China will have a profound impact on biofuel prospects over the next five years. Overall biofuel demand growth could more than double to near 9% a year in the accelerated case. If implemented, policies under discussion in these countries would account for two-thirds of this growth. In this case, Asia accounts for the largest upside and surpasses Brazil to become the second-largest biofuel producer globally. Biojet demand also expands considerably, growing by almost 6 billion litres by 2026, higher than the demand growth for renewable diesel over the last five years.

In the United States, the Sustainable Aviation Challenge sets a goal for the airline industry to use 11 billion litres of sustainable aviation fuel (SAF) by 2030 (Office of Energy Efficiency & Renewable Energy, 2021), equivalent to 15% of current jet fuel demand. 3 To support this goal the government is working on a SAF tax credit linked to GHG intensity. The United States also plans to outline rule-making for the Renewable Fuel Standard (RFS) later this year (Office of Information and Regulatory Affairs, 2021b). SAFs qualify for credits under the RFS.

Biofuel demand and share of total demand in the accelerated versus the main case by region, 2021-2026


Biofuel demand and share of total demand in the accelerated versus the main case by fuel, 2021-2026


In the European Union, the “Fit for 55” package includes a proposal for a transport GHG intensity requirement that would double the existing renewable energy target for transport of 14% by 2030 (European Commission, 2021b). The package also includes a proposed 2% SAF blending mandate by 2025 under the ReFuelEU Aviation initiative (European Commission 2021d) and a 2% GHG improvement for shipping under FuelEU Maritime (European Commission, 2021e).

Although biofuels and bioenergy received scant attention in China’s outline of its 14th Five-Year Plan, the country plans to peak emissions before 2030. As part of that plan, China plans to vigorously promote alternatives like advanced liquid biofuels and SAF (The State Council of the Peoples Republic of China, 2021). According to IEA analysis, biofuels play an important role in achieving emission reductions in China.

India will find it challenging to implement its 20% blending mandate in just five years, but even reaching 11% blending would make it the world’s third-largest ethanol market behind the United States and Brazil.

Biofuels need to expand faster to align with the IEA Net Zero by 2050 Scenario

Biofuel demand must nearly double from our main case or expand by over 40% from the accelerated case to align with the IEA Net Zero Scenario. Liquid biofuels expand in the Net Zero Scenario to 2026 primarily to reduce emissions in road transport and to a lesser extent for planes and ships. 

Biofuel demand in the main case, accelerated case and Net Zero Scenario, 2018-2030


To align with the Net Zero Scenario, countries would need to implement existing and planned policies, and then strengthen them before 2026. These policies must also ensure that biofuels are produced sustainably and avoid the risk of negative impacts on biodiversity, freshwater systems, and food prices and availability. In addition, policies must incentivise GHG reductions, not simply biofuel demand, so that every litre of biofuels used reduces emissions relative to fossil fuels as much as possible.

The following policy summary table provides details for major biofuel markets, including notable policy changes for selected countries in the main and accelerated cases. The analysis is based on policy assumptions for demand, supply and trade for 61 countries.

  1. Biodiesel, also called fatty acid methyl ester (FAME), and renewable diesel, also known as hydrogenated vegetable oil (HVO), can both be blended with diesel fuel. Renewable diesel has the same chemical composition as fossil diesel and so is fully compatible with existing diesel engines. Biodiesel has a different chemical composition to fossil diesel and so blending is limited. Europe, for example, limits blends to 7%.

  2. Based on US ethanol, Brazilian ethanol and biodiesel, Indonesian biodiesel and EU biodiesel. EU ethanol in August 2021 averaged 7% higher than average 2019 values, but has since climbed to a 33% increase (IHS Markits, 2021a). 

  3. SAFs are jet fuels that are certified for use in commercial jet aircraft and that meet GHG and other sustainability criteria, and are also made from raw materials other than fossil fuels, such as wastes and agricultural residues.